EFTA01458610

Deutsche Bank Markets Research Global Foreign Exchange FX Spot FX Forecasts and Valuations Don't throw in the towel Now is not the time to 'throw in the towel' on the strong US dollar trade that in broad USD trade weighted terms likely has at least another 10% to go The scenario analysis below outlines how the risk environment, notably events in China, will dictate the extent to which dollar strength is concentrated in EM and commodity FX, or rotates back to the major 610 currencies as well. It's still far too early to throw in the 'strong USD towel'. Instead, 'the rotation' story highlighted in the January 2015 FX forecasts and valuation publication still applies. In the big picture, dollar strength continues to migrate. It started with the yen, moved to 'the Fragile 5', the EUR, commodity currencies, and the spotlight is now shining brightly on non-Japan Asia FX, with serious ramifications for most EM and commodity currencies. What has been notably absent in the latest phase is USD vigor against other G4 currencies, which deserves special attention to ascertain the conditions when this could reassert itself, but this should not distract from the dollar's strength seen elsewhere. Table I: States of the world and the EUR 'S -curve' Date 25 September 2015 Alas Puttee Macro strategist George Sesvolos Macro Strategist • • • • • Stets 4: risk extremely newest Ste 1: risk unchanged/postern • Fed tightens, ECB & BoJ on hold • Broad USD gains • EM& Commodity FX do not further underperform EUR by much • EUR/USD tests 1.05 (EUR/USD down -10 big figures for every 100bps the 2Y spread moves in favor of USD) Fed reacts by easing (negative rates) ECB & BoJ add to QE USD stronger then sharply weaker EMFX "V" (slump then partial sharp recovery) FX volatility extremely elevated EUR/USD : risk off -)parity Fed res . • nds 9 1.20+ Stead 3: dek comisesnIty negatin Stets 2: risk nobly, modestly negative • • • • Fed steady ECB & BOJ add to GE USD stronger vs. G3 EUR/USD to 1.05 then test parity • Fed steady, ECB steady • USD slightly weaker vs. G3 • USD/Majors volatility is contained • G4 FX outperforms EM and Commodity FX • EUR/USD 1.08.1.15 range bound USD positive E lift pewit Ivo EUR positive USD 'legal rv'> EUR/USD i i i I S-Curve I I Stoto 4 Steno 3 Risk 4 ,4•44,ely. Risk negative I consistently 1 negative tote 2 Risk modestly negative Stator Risk unchanged or passive Scarce De,.eneAe Sera Deutsche Bank Securities Inc. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) CONFIDENTIAL DB-SDNY-0118599 SDNY_GM_00264783 EFTA01458610